Japan logs 1 percent growth in 2016 as private demand stalls

In this Jan. 15, 2017, photo, a couple pushes a baby buggy at Tokyo's Roppongi district. Japan's economy expanded at a slightly slower than expected 1.0 percent annual pace in 2016, helped by an uptick in exports, the Cabinet office reported Monday, Feb. 13, 2017. The world's third-largest economy grew 0.2 percent in the last quarter, from the previous quarter, according to preliminary data, the slowest pace for the year. (AP Photo/Shizuo Kambayashi)
(The Associated Press)

TOKYO – Japan's economy expanded at a steadily slowing pace in 2016, though a modest recovery in exports helped offset sluggish spending by households and businesses, according to data reported Monday.

The 1.0 percent annual pace of expansion for the year compared with 1.2 percent growth in 2015. For all but one quarter of the year, private demand was flat or negative. And quarterly growth slowed to 0.2 percent in October-December, down from 0.6 percent in January-March.

The preliminary data released by the Cabinet office could be revised upward. But overall the report showed the challenges Japan's planners are facing in trying to rekindle growth without much help from corporate investment or wage increases.

THE GOOD NEWS: 2016 was the first year that Japan saw no quarter-to-quarter contractions in over a decade. Corporate investment rose 3.8 percent from a year earlier in the last quarter, and the net gain from trade rose 5.4 percent. A recent weakening of the Japanese yen against the U.S. dollar, from about 100 yen in the summer to about 114 yen per dollar now, is helping corporate profits and exports.

NOT SO GOOD: Real wages were flat in October-December, a main period for customary twice-annual bonuses. Household spending slipped 0.1 percent. For the year, private demand rose 0.4 percent, down sharply from 2015. Manufacturers generally have been slow to invest or raise wages, and the consumer demand that drives most business activity has remained tepid. Meanwhile, a weak yen tends to push prices for imported food and other items higher, further discouraging spending.

THE OUTLOOK: A mild recovery in China has helped boost demand for shipments of machinery and other industrial inputs from Japan. The usual boost from increased government spending at the beginning of the April-March fiscal year will also likely sustain growth in coming months. But with President Donald Trump threatening to raise tariffs to rebalance the U.S. trade deficit, "the increased dependence on exports to keep real GDP growth in positive territory is a concern given the growing risk of global trade tensions," BMI Research said in a report Monday. It forecast that growth would slow to 0.8 percent in 2017.

IN THE LONG RUN: Japan's population is shrinking and rapidly aging, so businesses are opting to expand in faster growing overseas markets rather than at home. Meanwhile, real disposable incomes have stagnated for the past three decades, while near-zero interest rates mean Japanese pensioners lose money on the nest eggs they rely on to survive retirement. Progress on promised sweeping reforms of labor laws and other regulations to make the economy more competitive has been slow. "The government needs to accelerate reforms, including changes to pension and tax systems, as well as labor rules to reduce obstacles to sustainable growth," Harumi Taguchi of IHS Global Insight said in a commentary.